Dorothy Shapiro Lund on the Case for Nonvoting Stock

The Case for Nonvoting Stock

S&P Dow Jones Indices will no longer include companies that go public with multiple classes of shares on its major U.S. stock indexes, it announced in July. A few days earlier, FTSE Russell said it would bar dual-class companies from its indexes unless public shareholders hold at least 5% of the voting rights.

These policy changes were made in response to a recent surge in dual-class initial public offerings, in which company insiders raise cash by selling nonvoting or low-voting stock to the public while retaining voting control over the company. Such structures were historically favored by family-owned companies seeking to preserve control but have recently gained popularity among successful technology companies, including Google,Facebook and, more recently, Snap Inc.


Both sides of the debate overlook an important and unrecognized benefit of dual-class structures: A corporation that offers two classes of stock to the public is able to allocate voting power between shareholders who are informed about the company and its performance and those who are not.

Read more at The Wall Street Journal